Difference between revisions of "Papers on Economic Agent-Based simulation"

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==Constructive Modeling of Decentralized Market Economies: An Agent-Based Computational Economics Approach==
The content of this page has moved [http://minsim.cs.princeton.edu/publications.htm here].
Presentation given by Leigh Tesfatsion
A presentation on the general working of agent-based economic simulation.
*Difficulty of modeling real world dynamic economic systems
**Distributed local interactions
**Strategic behavior and uncertainty
**Institutional constraints
*Previously, assumed everyone rational, so no need to look deeper into cognition and social interactions
*Agent-Based Computational Economics (ACE)
**Economic world with various agent types
***Agents adapt behavior, communicate, learn to complete goals
**Set initial conditions
**World develops over time
**Events driven by agent interaction
*ACE research
**Empirical Understanding
***Explanation for persistently observed empirical regularities
***Are these trends always observed in the models?
**Market Design
***Efficient, fair, and orderly social outcomes?
***Even if agents try to ‘game’ the system?
**Qualitative Analysis
***What are the performance capabilities?
***Does coordination occur?
*Starting point
**Two-sector Walrasian equilibrium economy
***No imposing equilibrium conditions
***Agent driven production, pricing, and trading
***Does equilibrium emerge?
**Look for market organization
***How does trading occur?
***Bilateral or mediated trade?
****Mediators: brokers (no inventory) and dealers (inventory)
**Mediated markets: auction (central, clearing houses), OTC (not central, managed by dealers), exchanges (mix)
**Look for learning behavior
***Price/quantity discovery process
***Buyer-seller interaction networks?
****Long term relationships: trust?
*****Terms of trade
*****Seller-buyer matching
*****Manage longer term relationships
*Illustration by Hash-and-Beans economy
**Learning method can matter
**Setting initial conditions?
***Carrying capacity
***Market clearing
***Market efficiency
**Intensive experiments often needed
**Multi-peak rather than central-tendency outcome distributions can arise
**Difficult to learn and build platform
**Permits systematic study of behavior and markets
**Can look at interesting problems and get quick feedback
The presentation can be found [http://www.econ.iastate.edu/tesfatsi/ACEIntro.Econ502.pdf here].
==Introduction to Walrasian General Equilibrium Modeling==
Paper by Tesfatsion (8/06/08)
*Decentralize market economies are complex dynamic systems made up of micro agents taking part in local interactions.
**This creates global regularities
***e.g. employment and growth rates, income distributions, market institutions, and social conventions
***Creates interdependent feedback loops
*Walrasian equilibrium model common way macroeconomists model the economy
**Consists of finite profit-maximizing firms, finite consumers with exogenously determined preferences, and a Walrasian Auctioneer
**9 Basic Assumptions for Walrasian Equilibrium Model
***1)Fixed finite number of consumption and capital goods.  All goods are private, excludable, and rival
***2)Fixed number of consumer agents with preferences over different bundles of goods and nonnegative initial endowments  of capital goods and labor
***3)Preferences of consumer can be represented by a utility function
***4)Fixed number of firms
***5)Income of consumers comes from dividends and sale of services
***6)Markets are complete
***7)Consumers take prices as given
***8)Firms take prices as given
***9)All purchase and sale agreements are costlessly arranged and enforced
*Simple WGE Illustration
**The market is said to be a Walrasian equilibrium if it satisfies the following four conditions
***At a specific vector e* comprising consumer supplies and demands for services and consumption goods, firm demands and supplies for services and consumption goods, non negative prices, expected prices, and expected dividends
****Each consumer is maximizing his utility and each firm is maximizing its profits
****Expected prices coincide with actual prices and expected dividends coincide with actual dividends
****Excess supply is greater than or equal to zero
****The total value of excess supply is zero
*Pareto Efficiency and the First Welfare Theorem
**How do we measure a person's welfare?
***Productive efficiency vs. Pareto-effiency
***Any Walrasian economy is Pareto efficient
*Robustness of the WGE
**The Walrasian general equilibrium model eliminates the need for economic agents to interact strategically
**Three Questions
***1)How might strategic interaction become important if firms set prices for their inputs and outputs?
***2)How might expectations and learning rules become important if firms set prices for their inputs and outputs?
****Information exploitation and exploration
***3)How might bankruptcy rules, rationing rules, and inventory management become important if firms set prices for their inputs and outputs?
The paper can be found [http://www.econ.iastate.edu/tesfatsi/WalrasIntro.pdf here].
==Non-Walrasian Equilibrium: Illustrative Examples==
Paper by Tesfatsion (7/31/08)
*Do all markets always clear, or can there be equilibrium without total market clearing?
*Keynesian equilibrium
**Those with incentive to change state have no power to, those who have power to change stare have no incentive
**Multiple possible equilibrium states
*Signaling problems
**Incomplete signaling
***Do not signal what future actions might be, so others have to make investment decisions that might be wrong
**Signaling not credible
***Even if signal today, not credible unless backed today by purchasing power
*Dynamic Stochastic General Equilibrium (DSGE) Model
**Allows disequilibrium, due to shocks
**Equilibrium would exist without shocks
**Tends toward equilibrium in the long run
*Involuntary Unemployment
**Wage/labor not in equilibrium
**Those with incentive to change state have no power to, those who have power to change stare have no incentive
***Unemployment equilibrium
**Optimism/pessimism about future signals can affect this equilibrium
*Demand Signaling
**How do customers signal future demand?
**Need current purchasing power to
**Liquidity constraints
**Clower: liquidity and credit constraints can lead to persistent involuntary unemployment due to signaling problems
***People can’t work as much as they want
***Can’t borrow vs. future income
*Effective Equilibrium
**Holds given
***Consumer and firm on effective demand and supply curves
***All price and dividend expectations are fulfilled
***Effective supply is at least at great as effective demand
**Firm as price taker in wage
***Would not lower unless perceived high employment supply
*Coordination Failure
**Mutual gains not realized because no individual has incentive to change from current behavior
**Can be Nash Equilibrium, but not Pareto efficient
The paper can be found [http://www.econ.iastate.edu/tesfatsi/nonwalra.pdf here].
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